The mood in reinsurance has changed somewhat. According to the rating agency AM Best, the four major European reinsurers are now concentrating on profiting from the higher prices while they last.
At the same time, there are also clear signs of growth in the area of specialty reinsurance.
Conditions on the reinsurance market remain tough so far in 2024, with a slight slowdown in selected areas and programs towards the middle of the year, but an overall stable environment.
While the price has weakened and flattened, the terms and conditions as well as the key tie-ins have also remained stable so far.
AM Best comments on the current conditions and the fact that the reset has proven to be sustainable so far.
“As tough conditions in the reinsurance market continue into 2024, the four major European reinsurers are well prepared for property catastrophes.
“This follows a period of portfolio sizing, increasing anchor points and moving away from aggregated coverage and working shifts,” the rating agency said.
As a result, “Europe’s four largest reinsurers reported strong results for their non-life reinsurance segments in 2023 and the first half of 2024, benefiting from continued strong pricing and terms.”
While profitability and growth have accelerated since the realignment of reinsurance in the 2022 and 2023 renewals, the question remains as to the sustainability of these conditions and whether the appetites of these large reinsurers could lead them to give up some of the profits they have made.
AM Best believes the mood has changed from a determination to maintain the current difficult market situation to a desire to capitalize on it while it lasts.
The rating agency said: “Although there are no signs yet of this discipline waning, sentiment has changed somewhat and the focus is now on taking advantage of the low prices while they last.”
Of course, we have seen this before.
Reinsurance rates, particularly for property damage catastrophes, have fallen significantly after the high-loss year of 2025. Although they quickly weakened again, both the 2008 financial crisis and the loss activity around 2011 helped to maintain the more stable environment.
However, from 2012 to 2017, major global reinsurance companies sought to gain pricing advantages and increase market share. This occurred at the same time as the expansion of private insurance-linked securities (ILS) and collateralized reinsurance, leading to a collapse in prices and a significant expansion of contract terms.
Again, this was motivated by a sense of not wanting to miss out and take advantage of the price even when it was falling rather than getting into the weakest phase of the cycle, while fearing that we might not see similar highs again (remember, this was around the time when many were saying ILS would completely destroy the market cycle).
This proved to be wrong. But now we are once again in a phase where reinsurance prices and conditions are high and appear stable, but the big traditional players are now trying to make the most of it while it lasts.
All of this might give you a feeling of déjà vu. But it’s too early to say that this time will be no different.
Those who lived through, and were even instrumental in, the decline in interest rates between 2012 and 2017 have seen it before and have no desire to return to the extremely low prices and extremely long insurance terms we experienced then.
At the same time, little has changed in the efficiency of the structure and functioning of the reinsurance market and in the way in which transactions are conducted.
The only change at present is the ongoing maturation of the relationship with alternative capital and ILS in reinsurance. This could have a dampening effect in the future, but in our view it will initially be more of a growth stimulus than anything else.
This means that appetite and fear of missing out could be the main cause of the next slowdown in the cycle – if and when it occurs.
We are also hearing from brokers putting pressure on reinsurers to be more open to providing lower-end cover at year-end renewals, while others say access to the key upper tiers of the towers may be most readily available to those who are also considering providing lower-end protection, aggregate and lateral covers.
Sentiment and fear are key drivers of reinsurance cycles, both in terms of losses and perceived threats and in terms of failure to capitalize on the current peak.
The only positive we are seeing this time around, which could mean that the current peak lasts longer, is the fact that many reinsurers are betting on growth and expansion rather than simply buying up some of the higher-yielding US property catastrophe risks before they fade (as we saw all too clearly from 2012 to 2017).
